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Cuts to Victorian Land Tax Proposed

The Victorian Government has announced: reduced land tax rates a higher tax-free threshold; and the abolition of 'special land tax' on primary production land in the Melbourne metropolitan area.

Michael Taylor-Sands

Tax (Legislation and Law)

Rates reduced

The land tax rate reductions are shown in this table

Land Value

Previous Rate

New Rate

Less than $200,000

Nil

Nil

$200,000 - $225,000

0.2%

Nil

$225,000 - $539,999

0.2%

No Change

$540,000 - $899,999

0.5%

No Change

$9000,000 - $1,190,000

0.8%

0.8%

$1,190,001 - $1,619,999

1.2%

0.8%

$1.62 Million - $2.7 Million

1.8%

1.3%

$2.7 Million +

3%

2.5%

Tax free threshold raised

As the table shows, the current tax-free threshold of $200,000 is to increase to $225,000. The Government expects that this will remove approximately 28,000 taxpayers from Victoria's land tax system.

Special Land Tax abolished for primary production land in the Melbourne metropolitan area

What is special land tax?

Special land tax is imposed when the use of a piece of land changes from a tax exempt use to a taxable use. The rate is 5% of the taxable value of the land.

Land which is currently exempt, but which is subject to special land tax on a change in use, includes:

primary production land located in greater Melbourne but not in an urban zone;

primary production land located in an urban zone in greater Melbourne;

sporting, recreational or cultural land;

residential care facilities and caravan parks; and

land owned by a statutory authority or used as a mine.

If the change in use occurs:

at the same time as (or within 60 days after) a change in ownership of the exempt land, then the owner immediately before the change in ownership is liable to pay the tax.

in any other instance, then the person who owned the land immediately after it ceased to be exempt is liable for the special land tax.

The reason for the change in use is immaterial under the Land Tax Act 2005.

Land tax operates independently of income tax (in particular CGT) consequences that may apply upon a change in ownership.

Changes announced

In the May 2007 Budget, the Victorian Government announced two key changes:

abolition of special land tax on primary production land that is wholly or partly in the metropolitan area; and

greater fairness if land is compulsory acquired or if its zoning changes.

Land in the 'metropolitan area' is equivalent to land in 'greater Melbourne'. Despite the current distinction between urban and non-urban zone land, it appears as though special land tax will be abolished in respect of both forms of land. We will have to await the final form of legislation to be sure.

The Government has not announced how it proposes to address the current perceived unfairness flowing from either zoning changes or the compulsory acquisition of land by Government authorities from private landowners.

Practical Implications

As a result of the announced changes farmers in the metropolitan area:

will be able to change the use of their land without a special land tax cost; and

will be treated in the same way as farmers in regional Victoria.

If a zoning change or compulsory acquisition leads to a change in use, then the indications are that a concession will be available.

The Government expects that the changes will simplify the current regime and ensure that it operates more equitably.

Law not yet available

The changes were announced in the 2007/08 budget papers and are not yet law. As with all state Government tax reform initiatives, the devil is invariably in the detail. Taxpayers subject to Victorian land tax will therefore need to wait until legislation is enacted in the coming months to fully understand the practical scope of the changes on their land holdings.

More Information

If you would like more information about this article or land tax generally, call Maddocks on 03 9288 0555 (Melbourne) and ask for a member of our Tax & Revenue team.

Lawyer in Profile

Anna Tang
Senior Associate : 61 3 9288 0563

Anna is a senior associate in the Maddocks Tax & Revenue team.

Anna advises extensively in the following areas:

direct and indirect tax advice on structuring of businesses and transactions;

mergers and acquisitions;

corporate reorganisations;

sale of businesses;

joint ventures;

property developments;

succession planning; and

liquidations.

Anna's clientele has been predominately made up of small to medium enterprises ranging from information technology to property developers, private education providers, accountants and financial advisors.

Prior to joining Maddocks in 2006, Anna worked at Ambry Legal practising in tax and commercial law.

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